The Department of Telecommunications (DoT) has decided to extend the production-linked incentive (PLI) scheme for the sector by another year, and also cleared a new set of 11 telecom and networking products, which will be brought under the scheme with additional incentives of about Rs 40 billion. The existing PLI beneficiaries will be given the option to choose financial year 2021-22 or financial year 2022-23 as the first year of incentive.
The telecom-related PLIs were originally announced in February 2021 with an outlay of Rs 122 billion. About 31 companies, including 16 medium and small-scale enterprises (MSMEs) and 15 non-MSMEs (large companies), were granted approval in October 2021.
Of the non-MSMEs, eight were domestic companies while seven were multinationals. The companies selected under the scheme include Flextronics, Foxconn, Jabil (an Ericsson group firm), Nokia, Rising Star, Dixon Technologies, VVDN Technologies, Tejas Networks, HFCL, ITI, Coral Telecom and Lekha Wireless.
The union Budget 2022-23 amended the scheme and added the concept of design-led manufacturing in order to encourage research and development (R&D), especially with a focus on building the ecosystem for the yet-to-be-launched 5G service. Starting June 21, 2022, DoT invited applications from design-led manufacturers as well as others for availing of PLIs for five years commencing April 1, 2022.
Successful applicants up to financial year 2025-26 will be eligible, provided they meet the qualifying standards of incremental annual thresholds. The new version of the telecom PLI scheme also removes the 15 per cent cap on investment to be made for R&D.
Telecom equipment makers that use 50 per cent Made in India components in their products will be eligible for the design-linked incentive. The scheme stipulates a minimum investment threshold of Rs 100 million for MSMEs and Rs 1 billion for non-MSME applicants while being open to both domestic and global firms. Land and building costs will not be counted as investments under the scheme. The allocation for MSMEs has been enhanced from Rs 10 billion to Rs 25 billion.
DoT also said that applications for design-led manufacturing will be prioritised over other manufacturers while shortlisting. This is to recognise and encourage R&D-driven manufacturing in India to enhance the contribution to the global value chain as envisaged in the National Digital Communications Policy, 2018.
The incentives will be based on incremental sales of manufactured goods and range between 4 per cent and 7 per cent for different categories over the five-year period. MSMEs will get an additional 1 per cent incentive in the first, second and third years.
The minimum global revenue criteria must be satisfied to be eligible for incentives and applicants have the option to invest in a single or in multiple eligible products. The incremental sales of manufactured goods as covered under the scheme’s target segments will be calculated over the base year (2019-20). The new PLI commitment from the DoT side, including the expanded list, is Rs 40 billion.
The extensions and additions could attract around $3 billion (roughly Rs 239 billion) of potential new investments from global and local companies, say stakeholders. It would drive the local creation of intellectual property and also help fill gaps in local supply chains for telecom-related products.
According to Ericsson, the incentives for design-led manufacturing will help grow the overall network ecosystem. More local design and manufacturing will mean growth of the overall sector and growth of the components ecosystem, which is critical for sustaining local manufacturing.
The extension is at least partially due to the failure of many MSMEs to submit their investment plans and meet the production targets for fiscal year 2021-22. The extension offers them the chance to opt for 2022-23 as the first year of incentive. Companies that have actually met the targets can, however, register for incentives in 2021-22 itself.
The development comes after a number of domestic manufacturers had written to DoT seeking a one-year extension to meet the targets since they effectively had only four months to meet their targets in 2021-22 as the approval came very late in the financial year. While big multinational players such as Nokia and Ericsson were on track to meet the targets for the first year of the PLI scheme, many domestic players were unable to meet their incremental investment and production targets for the first year since the final approvals came only in November 2021.
The initial PLI outlay amounting to Rs 121.95 billion was also not utilised fully. The 31 proposals cleared in October 2021 entailed investments of Rs 33.45 billion until 2025-26. According to the government’s dashboard, Rs 4.5 billion has been invested via the scheme, led primarily by global companies, which account for more than Rs 2.4 billion of the total investment so far. The scheme has generated over 5,000 estimated employment opportunities and sales worth over Rs 90 billion have taken place under the scheme.
Hence, DoT is giving an option to select companies to also apply for the design-led manufacturing scheme, which gives an additional 1 per cent incentive. But in order to be selected for the design-led scheme, the companies must design locally and register the source code in India.
The extension and the expansion have both been welcomed by stakeholders. “The industry could not have expected a better time for this announcement as the global supply chain has been impacted by geopolitical tensions following the pandemic,” says Pankaj Mohindroo, chairman, India Cellular Electronics Association.
Prashant Singhal, EY’s Global TMT Emerging Markets Leader, believes that with the thrust to the right segments and an enabling environment, “India is well positioned to attract more global manufacturers and also incentivise Indian design-led manufacturers”.
N.K. Goyal, chairman emeritus, Telecom Equipment Manufacturers Association, says: “We can expect both existing PLI beneficiaries as well as new players to participate in the scheme, which, in turn,
should give a boost to component supply chains, lead to IPR creation and more tech jobs.” The extension of the PLI scheme by another year meets a long-standing demand of the local applicants since it is always a challenge to meet scheme targets in the first year, given inevitable delays in approval, he adds. If all goes as planned, this should help India edge closer to meeting its goal of becoming an electronics design and manufacturing hub.
Disbursements of incentives for the first fiscal year (2021-22) for the allied handset PLI scheme run by the Ministry of Electronics and Information Technology have been delayed, reportedly due to the re-examination of invoices raised by an overseas applicant. The government is being cautious and is double-checking the numbers to ensure everything is in order before the first payout of incentives is made under the PLI scheme.
The allocations under the handset manufacturers’ scheme amount to Rs 410 billion. The scheme offers graded incentives in the form of cashback at 6 per cent of incremental sales of goods for the first two years each, 5 per cent for the third and fourth years, and 4 per cent for the fifth year.
The firms that qualified under the handset scheme include Samsung Electronics, Hon Hi (Foxconn) and Wistron, besides domestic contract manufacturers Dixon Technologies and UTL Neolyncs. Wistron and Foxconn make Apple handsets while Samsung manufactures its own brand products.
Overseas firms need to invest Rs 2.5 billion each to qualify and to produce incremental output of Rs 40 billion in the first year and Rs 80 billion in the second to get the cashbacks. Indian handset makers have to invest Rs 500 million each and achieve Rs 5 billion of incremental output. The handset PLI scheme is expected to bring in fresh investments, leading to a CAGR of 15-20 per cent in mobile phone production till 2025-26. Moreover, localisation would rise from the current 15-20 per cent to 35-40 per cent over this period, with a consequent value addition and positive implications for exports.
If the telecom PLI works as planned, it should generate employment and domestic IP for participants, and also help elevate India’s profile in the 5G environment. The Rs 760 billion semiconductor PLI scheme, which was also launched in 2021-22, is part of the same digital ecosystem. If that takes off along with the already successful handset scheme, the local digital supply chain would be considerably enhanced and India’s global presence, including IP, across these interlinked sectors would increase.